Mobile Home Park Investing Newsletter

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August 1st, 2013

Memo From Frank & Dave

We’ve been out driving our mobile home parks, to make sure that everything looks O.K. Although mobile home parks don’t need much oversight, as long as you are maintaining your management systems, there is still no substitute for driving out unannounced and seeing what’s really going on. We have been enhancing the quantity of “mystery shopping” that we perform on our managers, and we believe that such tests are a great way to find out how the manager is really performing when caught off-guard. We urge everyone to diligently snoop on their manager on a regular basis – no matter how well they’re performing. Make a call and see if they answer the phone or if they have a working voicemail. Call and pretend to want to rent a lot, and see what happens. And go drive your park and see if it looks as good as you think.

Why Credit Reports Don’t Work In Evaluating Tenants In Mobile Home Parks

When applying for a rental, we have all been trained to do a credit screening on the tenant. The credit report will show who is a good risk, and who has the best chance of paying the rent on time. Right? Well, in mobile home parks, we’re unconvinced that there is any correlation at all between what is shown on paper and the reality of what will happen with the tenant. Here’s why.

Mobile home park tenants always have money troubles

Most mobile home park residents (or applicants) have terrible credit reports. Why wouldn’t they? If anything happens to them, they have no savings and no insurance. A simple operation can put them in the doghouse to the tune of $50,000. A layoff from work can result in unpaid bills immediately, as they have little in the way of savings. The typical mobile home park resident is like a tight-rope walker with no safety net. Of course, the same is true for folks in apartments ranging all the way up to McMansions.

But there’s no reason they can’t pay the rent

Unlike the folks in McMansions and $1,000 per month apartments (the U.S. average apartment rent is $1,080 per month), the average mobile home park resident only pays maybe $500 per month or less. So even the occasional hospital visit or car break down will not serve to derail their ability to pay rent. Assuming a job paying $10 per hour (total income of $20,000 per year), they can normally cover the rent in roughly once week’s wages. The bar is set so low at a mobile home park, that virtually anyone can clear it.

So they can still pay rent and have lousy credit

We see this all the time in mobile home parks – the tenant with terrible credit who has never been a day late on the rent, for over a decade. There is a disconnect in mobile home parks between debts and current payables. Sure the hospital, credit card, rent-a-center, etc. all go unpaid or are in slow-pay status, but the rent comes in on time every month. This runs contrary to the conventional wisdom on credit reporting, but it’s the truth.

Credit reports don’t show the “fight” in the tenant – and that’s the most important thing

One of the most important factors concerning your tenant – and this is not on the radar screen of a credit report – is their willingness to “fight” to pay the rent and keep their home. If a tenant is willing to “fight” to keep their dwelling, they will do whatever it takes to get the rent paid, regardless of adversity. If they lose their job, they’ll get a part-time job, or sell something, or borrow from family. A tenant with no “fight” – even in a McMansion – will just walk off and leave it. That’s the most important personality trait, and goes unmentioned in a credit report.

The failure of the credit reporting system is all around us, but nobody ever talks about it

If credit reports were so darn valuable, then how do you explain the housing crisis that began in 2007? Those folks had high credit scores, and now they can’t dent the mortgage on their McMansion. The bottom line is that the credit reporting concept has never really been that effective a tool in guaranteeing success on the part of the lender or landlord. But it makes people feel good.

Conclusion

Credit screening is a good thing to do. We do it on every tenant. But we do it to mostly scare off the ones that are such a bad prospect that, when presented with the application, they run out the door. But the reality is that credit screening is a very poor analytical tool of the resident’s real performance in paying rent. The fact that they have a job is infinitely higher in importance. And their innate desire to keep their home is more important still. Be sensible in your credit process, but don’t assume that a high score will equal a good experience with the tenant. Stick with a no pay/no stay collections policy, and let the real world sort out which tenants are keepers – that’s the best way to proceed.

Exciting New Additions To Mobile Home University

We are about to make some important additions to the MobileHomeUniversity.com to help expand the awareness of affordable housing, as well as more timely reports on the things that matter to you the most. Starting in August, we will be adding a new Legislative Update section, to track the progress of bills that impact the affordable housing industry, the MHU 100 which will list the top 100 owners of mobile home parks in the U.S., and the Industry News section that will give you all the headlines related to the affordable housing industry. You will also soon be receiving two items. One is a questionnaire that we will be using to bring out the first factual survey of the affordable housing industry, and the second an entry form for the first-ever affordable housing awards. We think that affordable housing is a huge issue in the U.S., and we want to be the leader on getting the facts out.

Filling Your Vacant Lots Just Got Easier With The Legacy Park Finance Program

Legacy Mobile Homes

Most mobile home park operators have vacant lots to fill in their parks. They know they have the demand to fill the homes, and they know that they can get enough in rent to cover the costs. But the problem is financing – nobody carries the paper on the homes so you have to come out of pocket 100%, right? Well, that’s not the case anymore. Legacy Homes has brought out a new Park Finance Program that allows you to buy homes to fill your lots directly from Legacy, and they’ll finance 70% of the cost of the home including installation. We think that this will be a game changer for many operators, as they have been dreaming of a dependable financing source for their home purchases. And the Legacy product is outstanding as a home – nice floor plans, attractive colors, and great low pricing. We have been customers of this program from day one, and are excited that Legacy is now offering this program to all park owners, large and small. If you are interested in it, call Mark Ledet at Legacy at (786) 785- 9827, or contact us for a reference. We’re one of their largest customers.

Don’t Say We Didn’t Tell You So.

OK, maybe things have changed a little in the heart of America – but this riverboat just landed about a few weeks ago in Chester, Illinois.

A recent issue of Worth magazine had an article on the best states in the U.S. for economic growth. The winners? North Dakota, Indiana, Wyoming, Nebraska, Iowa, Kansas, and Texas. What do they all have in common? They’re all located in the Great Plains and Midwest – the areas that we have been buying parks in for the last 20 years. Are we geniuses? No, we just like those stable markets that have solid industries that are boring, like agriculture, meat production and equipment manufacturing – items which are sold and shipped the world over. They are also blessed with prudent financial management on the state level, so they can offer reasonable taxes and incentives for new industry. Are we proud of the Great Plains and Midwest? You bet – we live there!

Oh Yeah? We’ve Got Your Shirt Beat By A Ton.

rv park home study course

We saw this ad in a recent visit to Target. It seems that if you buy this brand of shirt, they will feed 20 people with the proceeds (I think the shirt costs $28, so the meals must be pretty small). Our opinion is that if you teach a man to fish, he’ll eat for a lifetime. So every mobile home that we get a family in for $495 per month saves them about $250 per month in rent over a similar 2-bedroom apartment. So, based on the same math as the shirt, we could claim that we paid for 200 meals each month. Multiply that times 8,000 lots, and we’re allowing for 1,600,000 meals per month to our tenants. Or maybe we could all just admit that such aggressive math is nonsense (unless you’re the government and trying to get a new bill passed). But one thing’s for sure – everybody who owns a mobile home park is definitely benefitting Americans by offering the last refuge of affordable housing. Don’t believe us? Go ask your tenants. Better yet, read our book called “Fifty Thank You’s”.

The Market Report

Mobile Home Park Stocks

Equity Lifestyle Properties - 70.27

Sun Communities - 74.03

UMH Properties - 13.26


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